From: Bill Gantz [BGantz@OvationPharma.com]
Sent: Thursday, December 18, 2003 4:23 PM
To: 'rule-comments@sec.gov'
Subject: SECURITY HOLDER DIRECTOR NOMINATIONS (File No. S7-19-03)
December 18, 2003
Mr. Jonathan G. Katz, Secretary
United States Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0609
Dear Mr. Katz:
As a director of W.W. Grainger, Inc., a New York Stock Exchange-listed company,
I appreciate the opportunity to comment on the proposal of the Securities and
Exchange Commission to provide shareholders direct access to company proxy
soliciting material to nominate directors under certain circumstances.
Widely known corporate failures have demonstrated that sound corporate governance
practices are not universally followed, and recent legislation, Commission action,
and regulatory standards have addressed these concerns. Therefore, I am opposed
to the proposal for the following reasons:
1. The Sarbanes-Oxley Act and implementing SEC regulations, the
now-final enhanced corporate governance standards of the New York Stock Exchange
and other of the regulated securities markets and the increased corporate governance
demands of the capital markets already require significant changes in corporate
governance practices. These changes not only require enhanced independence and
accountability for board and nominating committees but also provide for enhanced
methods for shareholder communication to the directors. The effectiveness of these
many reforms should be demonstrated before overlaying a complex director nomination
process of uncertain consequence.
2. State law already imposes on directors the fiduciary duty of
acting in the best interests of all of the shareholders. The board's nomination of
director-candidates is consistent with this duty. It is based on the understanding
that the board is best positioned to assess the qualifications of nominees. Through
this process, the board can take into account many factors in addition to the
independence and other requirements imposed by the new legislation and regulations,
such as the need to have various strengths and expertise that will result in a well-
rounded board as a whole. While boards may consider and are strongly encouraged to
consider shareholder nominees, the ultimate responsibility for selecting the right
mix of nominees rests with the board.
3. In contrast, it is possible that shareholders may act on the
basis of self-interest, not the interest of all shareholders. They have no fiduciary
duties to the company or other shareholders in connection with director nominations.
They may nominate director candidates for any number of purposes, regardless of whether
those purposes are designed to promote other agendas. Direct shareholder access to
company proxy soliciting material could undercut the role of the board and its
independent nominating committee and ultimately diminish board accountability to
shareholders.
4. There is a real question whether contested elections represent
the best approach for enlisting the services of the most able, qualified and
independent directors with the needed skills and experiences critically needed by
the company for the benefit of all shareholders. For this role, the newly required
independent nominating committee, not direct shareholder nominations, is naturally
suited.
It may be that facilitating these contests and accepting the other consequences,
both as outlined above and others yet unknown, are necessary to encourage the
corporate governance processes that we all recognize as critical. At this point,
however, we just do not know that to be the case. The new corporate governance
reality may achieve this laudable goal. We should find out.
Sincerely,
Wilbur H. Gantz
Wilbur H. Gantz
Chairman and CEO
Ovation Pharmaceuticals, Inc.
4 Parkway North, Suite 200
Deerfield, IL 60015
Phone: 847-282-1011